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XYZ Corporate starts with $20,000 book value of equity capital and zero debt. The ROE for the company is 15% and the required rate of
XYZ Corporate starts with $20,000 book value of equity capital and zero debt. The ROE for the company is 15% and the required rate of return for the company is 12%. There are 500 shares outstanding. Now XYZ Corporation decides that it will always reinvest 60% of earnings back in the company and pay out 40% of earnings each year in dividends to the shareholder. Thus, dividends for this company will grow at a constant rate.
7f. What is the book value of the company at the beginning of the second year?
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